You Can Finance a Mobile Home With a Mortgage, But There’s a Catch

Mobile, manufactured, and modular homes have many financing options available

Mobile, manufactured, and modular homes are popular choices for buyers interested in the tiny house movement and those struggling to afford to buy a traditional home. If these unconventional homes appeal to you, it is possible to obtain a mortgage loan to purchase one. However, the catch is that many lenders may require you to own or purchase the land and permanently affix your home to it to qualify for a conventional mortgage.

Key Takeaways

• Mobile, manufactured, and modular homes have multiple financing options available.
• Financing can be available through the manufacturer, local credit unions, or specialty lenders.
• Loan options like U.S. Department of Veterans Affairs (VA) loans, U.S. Department of Agriculture (USDA) loans, and Federal Housing Administration (FHA) loans are available on manufactured homes.
• You can use a home loan to purchase both a mobile, manufactured, or modular home and the land at the same time.
• Many borrowers take out chattel loans, which may be more expensive than a mortgage.

Types of Mobile Homes

The term “mobile home” applies to many types of homes that aren’t technically mobile. There are two main other subcategories: manufactured homes and modular homes.

Mobile Homes

Truly mobile homes are mobile. Tiny houses, travel trailers in which people live, and converted vans are all technically mobile homes. Structures that were factory-built before U.S. Department of Housing and Urban Development (HUD) code standards were established in 1976 are mobile homes. Manufactured homes built after standards were introduced are just manufactured homes as far as HUD and most lenders are concerned, but people still refer to them as mobile homes.

Manufactured Homes

Manufactured homes are the ones most commonly referred to as mobile homes. They are homes assembled in a factory and then placed on a lot. They are usually permanently affixed to one spot using some foundation, most commonly a slab. While manufactured homes can technically be moved from one place to another, it is frequently cost-prohibitive.

Modular Homes

If you’ve ever been stuck in traffic behind what looks like a house cut in half, then you’ve seen a modular home. Modular homes are still homes that are manufactured in other places and then assembled on-site. However, these tend to be much bigger versions than the standard manufactured home and often include second stories, garages, covered patios—and, in some cases, basements.

Warning

Never accept a loan offer before researching your choices, especially if you’re putting the home on a piece of property that you own.

Statistics on Manufactured Homes

Manufactured homes account for 6% of all occupied housing but a much smaller percentage of home loan originations, according to a report issued by the Consumer Financial Protection Bureau (CFPB). Whatever you call them, one reason why loan originations are so low is that people living in manufactured homes tend to be “financially vulnerable,” as the CFPB puts it—older adults or people whose self-reported incomes were in the lowest income bracket and who tend to be offered less-than-favorable rates and terms on any loan.

According to the CFPB, about 32% of households living in a manufactured home are headed by a retiree. They have about one-quarter of the median net worth of other households. Manufactured homes aren’t always eligible for a conventional mortgage because the prospective homeowner doesn’t own the land on which they are located.

Before taking out a loan on a manufactured home, it’s important to know your options and make sure that you apply for the most favorable type of financing.

Financing Options

There were originally only two types of manufactured home financing: a conventional mortgage and a chattel mortgage. As the manufactured home industry has evolved over the decades, more options have become available. Conventional mortgage options have built-in protections around foreclosures, closing disclosures on loan terms, and so on. They also offer much more favorable interest rates.

If the manufactured home is not permanently affixed to the land on which it is located, or if the homeowner leases the land on which the manufactured home is located, then the home doesn’t qualify for a conventional mortgage unless the property is eligible for an FHA loan. In this situation, the manufactured home is considered personal property instead of real estate.

If a borrower can’t get a traditional mortgage, they either can seek out financing through the home manufacturer—which is an option that wasn’t historically available—or will have to get a chattel loan through a specialty lender.

Conventional Mortgages

When a structure is considered real estate, all the protections that come with mortgages apply. The borrower can get a Federal Housing Administration (FHA)-insured mortgage or one backed by Fannie Mae, which also backs loans on manufactured housing. U.S. Department of Veterans Affairs (VA) loans and U.S. Department of Agriculture (USDA) rural development loans also can be available; these can allow you to put as little as $0 down on a manufactured home and the land on which it will go.

The loan will be covered by consumer protection laws that apply to conventional mortgages, including various state foreclosure and repossession laws that don’t apply to property loans. Mortgage loans also have much lower interest rates than chattel mortgages, starting at 5.99% for well-qualified borrowers.

Chattel Mortgages

A chattel loan allows for a mortgage on a property considered movable. Chattel mortgages are loan arrangements in which an item of movable personal property acts as security for a loan. The movable property, or chattel, guarantees the loan, and the lender holds an interest in it.

First and most important, chattel loans are priced much higher. Mobile homes, airplanes, yachts, houseboats, and specific farm equipment may qualify for chattel mortgages. 21^st Mortgage Corp., one of the largest originators of chattel loans, says that rates on manufactured homes currently range from 8% – 14%. Again, those with dinged credit can expect to see significantly higher rates. A mortgage calculator can show you the impact of different rates on your monthly payment.

Chattel loans are generally for shorter periods, lowering the total interest paid. Even so, 21^st Mortgage offers terms as far out as 23 years. Finally, chattel loans often have lower closing costs, and the time it takes to close on the loan is often much shorter.

In 2013, 86% of borrowers with a manufactured home used a chattel loan, despite 65% owning the land on which they live, which would have qualified them for a conventional mortgage. Fortunately, the percentage of borrowers with this loan type improved dramatically, according to a CFPB report from 2021 that lists the rate of borrowers with chattel loans at 42%.

Personal Loan

It may be possible to purchase a mobile, modular, or manufactured home with a personal loan, but it may not be advisable as these loans often have high-interest rates and shorter loan limits. Some lenders, like SoFi and LightStream, offer loans tailored to smaller dwellings if you are considering a tiny house or a mobile home.

Can I Get Downpayment Assistance on a Mobile Home?

Many states have down payment assistance programs. In several states, they can assist with a down payment on a mobile home or the land on which it will go. The U.S. Department of Housing and Urban Development (HUD) keeps a list of active programs by state.

Can I Get a Personal Loan for a Mobile Home?

Yes. A personal loan can be used to pay for a mobile home, but this is not generally advisable. Most personal loans have significantly higher interest rates than the rates available for mortgages or even chattel loans.

What Is the Minimum Credit Score Required for a Mobile Home Loan?

If you can afford a 10% down payment, then the minimum credit score required for a Federal Housing Administration (FHA) loan on a mobile home is 500.

If you have less money down or will be seeking a conventional mortgage or chattel loan, then your credit score will need to be at least 620 to qualify.

The Bottom Line

If you want to purchase a mobile, manufactured, or modular home, you can obtain a mortgage to pay for one; if you meet basic requirements, Mortgages are available on many types of non-traditional homes. These types of dwellings may make good starter homes for individuals and families who may not be able to afford a larger mortgage.

However, to qualify for a conventional mortgage, the home must be permanently affixed to your land. Unfortunately, many borrowers miss this detail and end up stuck in more expensive chattel mortgages with no foreclosure protections.

In addition, conventional mortgages can also cover the purchase of the land on which the manufactured home will go, so make sure to compare options before signing on to a chattel loan.

Read the original article on Investopedia.